S&P Companies' Q3 Share Buybacks Hit Record High... "Buying More in Q4"

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Kwon Jae-hee] The share repurchases of U.S. S&P 500 companies in the third quarter reached an all-time high. While the buybacks by U.S. companies are credited with driving this year's rally in the U.S. stock market, criticism is also mounting from some quarters, including U.S. politicians, over companies using their cash reserves for share repurchases instead of investments.

According to the Wall Street Journal (WSJ) on the 12th (local time), the share repurchase amount of S&P 500 companies in the third quarter was $234.5 billion (approximately 277 trillion won), marking a record high. This surpassed the previous record of $223 billion set in the fourth quarter of 2018.

In the fourth quarter, the record for corporate share repurchases is expected to be broken again. Howard Silverblatt, an analyst at S&P Dow Jones, forecasted, "In the upcoming fourth quarter, the share repurchase amount of S&P 500 companies will reach $236 billion, breaking the all-time high once again."

In fact, the share repurchases of U.S. S&P 500 companies slightly decreased in the second quarter of last year due to the impact of COVID-19 but then returned to an increasing trend. It fell from $199 billion in the first quarter of 2020 to $89 billion in the second quarter, then steadily increased to $199 billion by the second quarter of 2021.

Earlier in September, Microsoft (MS) approved a $60 billion share repurchase plan. Global rental car company Hertz recently announced a $2 billion share repurchase plan. IT company Dell Technologies is also reportedly planning a $5 billion share repurchase program.

Wall Street cited corporate share repurchases as one of the factors driving this year's rally in the U.S. stock market. Share repurchases reduce the number of outstanding shares, leading to a stock price boost, and are interpreted in the market as a signal of management's confidence, improving investor sentiment. Since the beginning of this year, the S&P 500 index has risen 25%, breaking its previous all-time high more than 60 times.

However, some voices criticize companies for using their cash reserves for share repurchases instead of investments. As a result, a bill imposing a 1% tax rate on share repurchases is currently pending in the U.S. Senate.

Bank of America (BoA) expects that if a tax is imposed on share repurchases, the pre-tax profits of S&P 500 companies will decrease by about 0.3%. Olivier Sapati, an analyst at asset management firm Genttrust, analyzed, "Since the tax rate applied to share repurchases is low, even if this bill is enacted, it will not have a significant impact."

This content was produced with the assistance of AI translation services.